Correlation Between IPG Photonics and Beauty Health

Can any of the company-specific risk be diversified away by investing in both IPG Photonics and Beauty Health at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining IPG Photonics and Beauty Health into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between IPG Photonics and Beauty Health Co, you can compare the effects of market volatilities on IPG Photonics and Beauty Health and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in IPG Photonics with a short position of Beauty Health. Check out your portfolio center. Please also check ongoing floating volatility patterns of IPG Photonics and Beauty Health.

Diversification Opportunities for IPG Photonics and Beauty Health

0.46

Correlation Coefficient

IPG Photonics  Beauty Health

Very weak diversification

The 3 months correlation between IPG and Beauty is 0.46. Overlapping area represents the amount of risk that can be diversified away by holding IPG Photonics and Beauty Health Co in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Beauty Health and IPG Photonics is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on IPG Photonics are associated (or correlated) with Beauty Health. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Beauty Health has no effect on the direction of IPG Photonics i.e., IPG Photonics and Beauty Health go up and down completely randomly.

Pair Corralation between IPG Photonics and Beauty Health

Given the investment horizon of 90 days IPG Photonics is expected to generate 1.73 times less return on investment than Beauty Health. But when comparing it to its historical volatility, IPG Photonics is 1.89 times less risky than Beauty Health. It trades about 0.07 of its potential returns per unit of risk. Beauty Health Co is currently generating about 0.06 of returns per unit of risk over similar time horizon. If you would invest  144.00  in Beauty Health Co on September 20, 2024 and sell it today you would earn a total of  17.00  from holding Beauty Health Co or generate 11.81% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Weak
Accuracy	100.0%
Values	Daily Returns

IPG Photonics  vs.  Beauty Health Co

IPG Photonics

Risk-Adjusted Performance

5 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in IPG Photonics are ranked lower than 5 (%) of all global equities and portfolios over the last 90 days. Even with relatively weak technical and fundamental indicators, IPG Photonics may actually be approaching a critical reversion point that can send shares even higher in January 2025.

Beauty Health

Risk-Adjusted Performance

4 of 100

Very Weak

Compared to the overall equity markets, risk-adjusted returns on investments in Beauty Health Co are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of very uncertain forward indicators, Beauty Health displayed solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with IPG Photonics and Beauty Health

The main advantage of trading using opposite IPG Photonics and Beauty Health positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IPG Photonics position performs unexpectedly, Beauty Health can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Beauty Health will offset losses from the drop in Beauty Health's long position.

The idea behind IPG Photonics and Beauty Health Co pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Competition Analyzer module to analyze and compare many basic indicators for a group of related or unrelated entities.